The auditing arm of Congress is urging the government to revamp the way Medicaid money is distributed, suggesting officials target funds based on the demand, geography and resources in each state.

Currently, Medicaid distributes $300 billion annually to the states to help pay the medical needs of the poor and disabled under a formula known as the Federal Medical Assistance Percentage, or FMAP. Payments are essentially based on each state’s per capita income (PCI).

But GAO said that formula fails to take into account the varying needs, resources and cost differences in the states.

“Specifically, we have noted that PCI, the sole measure included in the FMAP formula, is an incomplete measure of states’ resources, is a poor proxy for the size or characteristics of the states’ population in need of Medicaid services and does not take into account geographic differences in the cost of providing health care services,” the GAO said.

GAO said the Department of Health and Human Services, which houses the agency that manages Medicaid, should consider that some states have a greater demand for Medicaid money than others, and sometimes for different kinds of assistance. Some states might need more funding for the elderly, while some might need more for people with disabilities, it noted.

And despite the fact that the PCI is based on income, cost-of-living expenses are different in each state, leaving some citizens with more disposable income than others, GAO noted.

Geographic differences should also be considered, such as how far citizens are from hospitals or medical centers. For example, providing Medicaid for New York, where most of the state’s population lives in a single city, is going to be easier than providing assistance in Montana. And investigators said state resources should be considered. States with more cash should be able to provide more for their citizens with less federal assistance, the report said.

The GAO report has been sent to the Centers for Medicare and Medicaid Services for consideration.